Money transfer 'hawala' trouble anti-terror probes

By DAVID B. CARUSO Associated Press Writer

NEW YORK (AP) - Long before there was MoneyGram and Western Union, people in South Asian countries often used an informal network of brokers, called an "hawala," to transfer money over long distances when it was too inconvenient or dangerous to send cash by courier.

Today, the centuries-old system still exists and is used to move billions of dollars annually in and out of countries like Pakistan, Afghanistan and Somalia - often to the chagrin of U.S. law enforcement.

A federal law enforcement official told The Associated Press that terror suspect Faisal Shahzad is believed to have tapped into such a network to help fund a plot to detonate a car bomb in Times Square on May 1. The official spoke on condition of anonymity because the investigation is ongoing.

Authorities say three Pakistani men - two in the Boston area and one in Maine - supplied funds to Shahzad but may not have known how the money would be spent. The three have been arrested on immigration violations.

In Manhattan, authorities have accused Mahmoud Reza Banki, on trial in federal court for allegedly violating the U.S. trade embargo against Iran, of using an hawala to move more than $3 million illegally to Iran.

While most money transfers made through these hawaladars, or brokers, are benign, the system is also routinely used by drug smugglers, terrorists, and other criminals who want to move money without leaving a paper trail.

"Hawalas are not themselves nefarious," said Matthew Levitt, a former U.S. Treasury intelligence official, now a senior fellow at The Washington Institute for Near East Policy.

"If you live in Somalia or Yemen, or someplace in Pakistan where there is no bank, this is a simple way to send money."

But because the dealers operate informally, outside of regulation, they are also a hindrance to law enforcement agents trying to investigate the flow of illicit dollars across international borders.

"You are able to send money quickly and effectively under the radar without going through the formal banking system," Levitt said.

The networks operate like this:

A person who wishes to send cash abroad visits a broker, who takes the money plus a fee of around 5 percent. The broker then contacts a counterpart in the country where the money is going and relays instructions on how much is being sent and to whom. Within a day or two, the recipient gets a cash delivery, typically in local currency.

Usually, the two brokers don't need to actually exchange any money. Instead, they essentially work off of IOUs. Each one makes the needed payments out of his own pocket, then carries the other broker's debt until someone needs to move cash in the other direction.

Occasionally, the two brokers will need to balance their books by making an actual cash transfer, if more money is needed one way than the other.

For a U.S. immigrant of modest means, the system has great advantages. You don't need to have a bank account. There are no forms to fill out. It is faster and cheaper than using an official money transfer service.

Plus, the whole system is built on trust. In the U.S., the brokers are often small businessmen who see themselves as performing a public service for their countrymen.

For these reasons, U.S. authorities have had a difficult time shutting the networks down.

Operating an unlicensed money remitter in the U.S. is a crime, but the State Department reports that only a fraction of the businesses performing such services have registered as required.

Even a handful of high-profile prosecutions after the Sept. 11 attacks have failed to eradicate the system here, despite tough penalties for those who have broken the law.

In one New York case, the Yemeni-born owner of a Brooklyn ice cream shop was sentenced to 15 years in prison for transferring nearly $22 million overseas. One of his customers was Sheik Mohammed Ali Hassan al-Moayad, a Yemeni cleric convicted of conspiring to aid al-Qaeda.